LAWJOBS.COM S.F. BAY AREA JOB LISTINGS

March 19, 2007

Pillsbury Bankruptcy Conflict Has Court Abuzz

The normally subdued bankruptcy court of Judge Marilyn Morgan was buzzing Monday morning as lawyers argued over a motion to toss Pillsbury Winthrop Shaw Pittman off a bankruptcy case and disgorge more than $4 million worth of fees over an alleged conflict of interest.

But it wasn’t just the crowd of lawyers at the counsel’s tables and in the audience. The various cell phones and Blackberries rattled the tiny courtroom’s sound system, causing a brief delay while Bernard Burk, the Howard, Rice, Nemerovski, Canady, Falk & Rabkin lawyer appearing for Pillsbury, went into his bag to turn off the offending device.

He said he was sorry for the pause, adding “that’s not the last time you’re going to hear that this morning.”

Taking a contrite tone, Burk said that Pillsbury, which is representing longtime client and electronics maker SonicBlue in its bankruptcy case, should’ve made a required supplemental disclosure to the court.

The firm should have disclosed last September that some creditors threatened to sue it unless it indemnified them for money they were owed as the result of a 2002 SonicBlue bond offering that the firm signed off on in an opinion letter before the company went belly up, according U.S. Trustee Nanette Dumas’ motion to disqualify the firm. With a lawsuit looming, the trustee argued that Pillsbury could be conflicted because, “For every dollar the senior note holders’ claim was reduced, [Pillsbury's] corresponding exposure would increase.”

Burk called the failure to disclose “inadvertent,” but Dumas had a more sinister, if not Rumsfeldian, take on things. “We really don’t know what we don’t know right now,” she said at the hearing.

Dumas called for a Chapter 11 Trustee to be appointed to conduct an investigation.

Judge Morgan put aside any substantial discussion of disgorgement at the hearing and said she would rule in a few days on the motion to disqualify and a motion to appoint a trustee.